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Tesla Says Discount Request From Suppliers Was For Ongoing Projects

According to an earlier report by Wall Street Journal, Tesla had turned to some suppliers for a refund of previously made payments in a bid to turn a profit, citing a memo sent by a Tesla global supply manager.

Reuters

Updated:July 25, 2018, 12:18 PM IST
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Tesla Says Discount Request From Suppliers Was For Ongoing Projects
Tesla logo. (Representative image: Reuters)
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Tesla said on Monday that it had asked a small number of suppliers to cut prices on ongoing, long-term projects to improve its future cash flow, after a media report about a discount request sent shares of Tesla down as much as 6.6 percent. The Wall Street Journal had reported on Sunday that Tesla had turned to some suppliers for a refund of previously made payments in a bid to turn a profit, citing a memo sent by a Tesla global supply manager.

Concern that the memo signalled that money-losing Tesla was scrambling to find cash to fund its current operations and multiple long-term projects had sent shares down. A Tesla spokesperson said the electric vehicle maker had asked fewer than 10 of its suppliers for a reduction in "total capex project spend for long-term projects that began in 2016 but are still not complete."

Tesla had also recently denied that refunds of bookings of its Model 3 sedan were now outpacing reservations, responding to a report earlier in the day by a Wall Street brokerage citing channel checks on the electric carmaker.

Any pricing adjustments would improve Tesla's "future cash flows, but not impact our ability to achieve profitability in Q3," the spokesperson added. Tesla shares pared losses and were down 2.7 percent at $305.01. Cowen analyst Jeffrey Osborne told Reuters that Tesla's supplier explanation appeared "rational", but that there remained lingering concerns.

"We still have the same concerns, though, about general cash flow needs for the company, production quality issues, automation or lack thereof, as well as concerns on profitability..." Osborne said. Tesla has been burning through cash as it ramps up production of its Model 3 sedan. Chief Executive Officer Elon Musk has said the company does not need to raise cash this year, but several analysts have predicted that the electric car maker would need to raise capital soon.

Tesla had about $3.2 billion in cash as of March 31, after spending about $1 billion in the quarter. Tesla said Monday, "Negotiation is a standard part of the procurement process, and now that we're in a stronger position with Model 3 production ramping, it is a good time to improve our competitive advantage in this area." The spokesperson added, "We're focused on reaching a more sustainable long-term cost basis, not just finding one-time reductions for this quarter."

Musk tweeted: "Only costs that actually apply to Q3 & beyond will be counted. It would not be correct to apply historical cost savings to current quarter." Tesla has said the company will be profitable in the third and fourth quarters of the year. It posted a loss of $709.6 million in its first quarter. In June, Tesla said it was cutting several thousand jobs to become sustainably profitable without endangering the ramp-up of Model 3 production.
| Edited by: Abhinav Jakhar
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